ANZO secures ANZ National Bank

March 14, 2011

AMP NZ Office Limited (ANZO) is pleased to announce the retention of major customer ANZ National Bank (ANZ), with a substantial redevelopment of the ANZ Centre in Auckland.

ANZ New Zealand has agreed to a new 15 year lease commencing 1 January 2014 and will occupy 17,700sqm in the building, becoming ANZO’s largest customer. ANZO will undertake a comprehensive redevelopment of the ANZ Centre at an estimated cost of $76 million.

The redevelopment will include a substantial new pavilion lobby and entrance as well as the provision of new building services on a floor by floor basis.  The ANZ Centre will be repositioned as one of Auckland’s premier office towers.

ANZO Chief Executive Scott Pritchard said: “We are delighted that ANZ has chosen to remain with ANZO and within the ANZ Centre. This is a strong reflection of the quality and adaptability of ANZO’s portfolio to match the needs of our customers. We believe this transaction will be positive for the long-term health of the Auckland CBD office market.”

The new lease is expected to have a positive effect on rental growth prospects, projected vacancy rates, and values across the Auckland CBD office market. It will also increase ANZO’s portfolio weighted average lease term (WALT) by 1.2 years. Combined with further leasing successes, the new ANZ lease will lift ANZO’s WALT to 5.8 years, up significantly from 4.6 years at the end of December.

The lease provides for structured growth with a mid lease review to market, providing certainty for both parties. On completion of the redevelopment in 2014 it is forecast that the building will be valued at $233 million. The project is intended to be funded via bank debt and will take ANZO’s committed gearing to around 29 percent.

Further leasing success
In addition to the four new leases in 21 Queen Street which were announced with ANZO’s interim results last month, a further four new leases over five and a half floors have now been secured, lifting the building’s occupancy level from 30 percent to approximately 63 percent.

Additionally an undisclosed new customer has secured naming rights over 21 Queen Street.

Outlined below is a summary of the leasing transactions:

As a result of the ANZ transaction and the leasing activity at 21 Queen Street, the ANZO portfolio now has occupancy of 94 percent, compared with 92 percent at 31 December 2010.

Earnings guidance
As outlined with the interim results, there are a number of factors impacting earnings in the 2012 financial year.  These factors include the removal of building depreciation as a tax deduction; higher cost of debt following refinancing; Westpac vacating the PricewaterhouseCoopers Tower; and market rent reviews. 

Additionally, while the redevelopment of the ANZ Centre will ultimately lead to improved earnings, in the short term earnings will be impacted by some areas being unavailable during the redevelopment programme.

Recognising that there is a wide range of earnings estimates in the market, the Board of ANZO has decided to provide earnings guidance for the 2012 financial year earlier than would be usual.

The Board of ANZO expects the full year earnings for the 2012 financial year to range between $50.9 million and $53.8 million, equivalent to 5.1 cps and 5.4 cps.  The guidance assumes that the current positive leasing environment is sustained. The outcome within the guidance range is highly dependent on the speed with which vacant space is leased.

As previously advised, earnings for the 2011 financial year are expected to be between 5.9 and 6.1 cents per share.

Dividend policy
At the time of ANZO’s corporatisation from a unit trust into a company last year, the Board signalled its intention to carry out a review of ANZO’s dividend policy.

This review has now been completed and the Board has decided to align dividend policy with ANZO’s operating cash flows.  ANZO’s dividend policy will therefore be to pay out approximately 90% of distributable income as dividends, with the retained earnings being used to fund the capital expenditure required to maintain the quality of ANZO’s property portfolio.

Additionally, the Board recognises that the 2012 and 2013 financial years are impacted by higher vacancy rates due to the Westpac departure and the ANZ redevelopment.  The revised policy will therefore be phased in over the next three years with a payout of approximately 95% in the 2012 and 2013 years, moving to 90% for the 2014 year. The third and fourth quarter dividend for the 2011 year will be based on the expected 2012 dividend.

ANZO Chairman Craig Stobo said: “The Board of ANZO believes that the revised policy appropriately balances investors’ desire for a high yield with a prudent and sustainable dividend policy.  Importantly, dividends will be paid entirely out of cash generated from the portfolio without requiring additional borrowings.”

Performance fee
ANZO has also moved to correct a figure in the Information Pack issued 5 October 2010 relating to its management fee review and corporatisation proposal. The performance fee carrying account balance at 30 June 2010 was incorrectly stated as a deficit of $3,842,336. The correct figure was a deficit of $2,621,634. Additionally, the deficit at 31 December 2010 has been recalculated at $699,197 as compared with $273,900 disclosed with the 2011 interim results. This has not had any impact on performance fees paid or accrued to date.

About ANZO
ANZO is New Zealand’s largest listed investor in prime and A-grade commercial office property. Listed on the New Zealand Exchange, ANZO currently owns 15 New Zealand office buildings – Auckland’s PricewaterhouseCoopers Tower, ANZ Centre, 151 Queen Street, AMP Centre and 21 Queen Street; and Wellington’s State Insurance Tower, Vodafone on the Quay, HP Tower, 125 The Terrace, No. 1 and 3 The Terrace, Pastoral House, Mayfair House, AXA Centre, Deloitte House and 29 Willis Street (Chews Lane).